This final installment looks at employer rights and liabilities in mobile apps created by employees.

This is the third article in a three-part series. Please find part 1 and part 2 on the InsideCounsel website.

In this series for employers, we so far have considered “bring your own device” policies and the nexus of employment and information-technology policies. This final installment looks at employer rights and liabilities in mobile apps created by employees.

Although some areas in which mobile devices and the app economy raise unique or novel problems, the general checklist an employer may want to use is fairly standard. The legal questions still boil down to managing risks against potential problems of tort, privacy and contract.

All kinds of liability questions, ultimately, will be tied to the extent the employer is involved. If app development is widespread at your company, you may wish to address these issues via the employee handbook or employment agreements.

If you encourage or permit employees to develop apps or other material, you likely will face ownership and attendant questions for anything developed. An employee’s use of working hours, company equipment, and knowledge developed as a result of their professional responsibilities, or input or direction from colleagues and supervisors might create a genuine question regarding whether you or the employee is the owner of the employee’s work product.

If your employees regularly engage in freelancing and side projects, it would be wise to require new hires to sign an agreement stating that all materials, ideas and work product developed using company resources are works made for hire and are the sole property of the company. It would also be wise to include an acknowledgement that the employee will not be entitled to compensation for such works.

From a copyright perspective, it is preferable to deal with employee work via a work-made-for-hire arrangement than via individual transfers, because you are deemed the author for copyright purposes and therefore have sole dominion over the work and its exploitation. You are not required to compensate the employee for it, and you can add other contractual conditions and promises to cover any non-copyright elements of the arrangement before the employee tries to assert claims of ownership. However, an app cannot be a work made for hire, generally, unless the parties so agree in advance of its creation.

If you do not regularly have employees creating semi-independent work, you may prefer to deal with this situation one case at a time. If you learn of a work that you believe should rightfully belong to the company, you can negotiate with the employee to acquire the work and all rights, title and interests therein and thereto, including all rights of copyright, the patent or whatever the pertinent interest is. You can expect to be required to pay the employee for his or her work in this scenario.

For code developed by the employee (to power an app, game or program) that is not work made for hire, that employee will always be deemed the author for purposes of U.S. copyright. This means you must secure all the rights in and to the work to exploit it (or prevent its exploitation by others), the way that an author would. You also could attempt merely to secure a license from the employee, which you would want to negotiate the way you negotiate any arm’s length transaction.

In case of either a transfer or a license, you will be dealing with the employee after the work is created and, presumably, has some value. This may reduce your leverage in negotiations, so you may find that the employee wishes to obtain more money, to reserve rights to herself, or otherwise to benefit from her creation. In return, of course, you can ask the employee to warrant that the creation is original and non-infringing—something you may not be able to secure as easily in a work-made-for-hire situation.

Intellectual property questions

With an app developed by an employee, you are in the tricky position that (perhaps) it did not go through your normal development and clearance channels as it was created. Before using it (or negotiating to own or license it), engage in some diligence regarding its contents. If the code, user interface, storyline or other elements resemble those of third-party apps or other programming (TV shows, films, books or graphic novels), you may have a copyright or trademark and trade-dress problem on your hands.

If there is any open-source code in it (computer code made freely available with nonstandard license terms not negotiated between licensor and licensee), you will have to ascertain the license terms applicable to that body of open source work, to be sure that you can exploit it on your terms. For example, many open-source libraries permit free copying and distribution, but only if the end product is not sold to users.

In addition, you may wish to look for elements that comprise confidential information—whether yours or a third party’s. If your confidential information is embedded in or revealed by the app, you should invoke your internal trade-secret practices and decide whether to allow that material to be disseminated. If it appears that the employee has used confidential information of a third party, such as a former employer, you need to analyze the provenance and actual confidential status of that information.

If the app allows or encourages user interaction or submissions—such as a chat feature, social media cross posts or embedding of links, code or files—you may need to consider the potential liability pertaining to such elements. Could you identify a user if subpoenaed for infringing or defamatory activity, for example? Does the app have clearly defined, enforceable terms of use and a privacy policy that say exactly what users may and may not do, and that specify how you and the app collect and use data submitted, gathered or made available via the app?

If the app gathers user data and you do not own the app and its copyright outright, you need a written understanding between you and the employee-creator regarding ownership and use of all data.

Finally, think about the likely audience: If your app targets children, you may have a different kind of privacy issue on your hands, because children’s electronic privacy is highly regulated under a strict-liability standard.

Distributing free apps that allow or require in-app purchases to enjoy much of their functionality is coming under scrutiny by the Federal Trade Commission. Apple Inc. and Google Inc. have settled FTC claims for such matters, paying approximately $50 million between them in response to charges that children were running up bills their parents didn’t expect. This is a blend of pure consumer protection and of looking out for children’s rights, and is a very hot topic at the moment. Amazon.com Inc. has been found culpable in similar claims, but damages have not been assessed in that case.

Insurance

When examining intellectual privacy and other privacy considerations, check your professional and general liability policies, including cyber-coverage, and understand their limits and exclusions. Deliberate infringement, for example, or defamation might be outside the scope of your coverage and thus unavailable. If your ownership of the app is also questionable, that may complicate insurance relations, as well.

In addition to these traditional questions of insurance, think about the setting in which the app will be used. Does it invite use in the car, for example, potentially in violation of distracted driving or other laws? Does it allow or permit the gathering of personally identifiable data from subjects with whom you are not in privity of contract? Do you have a way to address user concerns (dispute mechanisms, take-down procedures, account deletion or corrections, a means to identify your users or address their behavior)?

Keep in mind that if you claim ownership of an app developed off the clock, an employee could claim back pay, including overtime compensation, for the time spent developing it. As a result, you should be judicious about seeking dominion over employee work.

Moreover, to the extent the employee infringed upon other employee’s work while developing the app, if you claim the app as your own you may be liable for the employee’s misconduct based on the respondeat superior liability theory (holding that employers are responsible for their employees’ actions in the course of business). Having solid no-work-off-the-clock and information technology policies can help mitigate these risks.

Although the app economy is very much a creature of the 21st century, the legal problems it raises tend to resemble those raised by formerly disruptive industries such as television, personal computers, print media, factory work and so forth. Employment of mobile, information-economy workers may require you to think about old problems in new ways. Common sense, forethought and sensitivity to those distinctions can help in almost all instances.